Committee reviews draft to equalize school property tax yields, create reserve and phase in homestead exemption

Legislative staff spent the meeting walking committee members through a draft bill that would change how Vermont funds education above the foundation formula, including a new calculation for so-called “excess spending,” a statewide education property tax rate, and a proposed homestead exemption to replace the state property tax credit.

John Gray of the Office of Legislative Council opened the explanation, saying the draft defines “excess spending” as "the locally voted amount above the educational opportunity payment." He and other staff described two linked mechanics: (1) a statewide education property tax rate set annually to raise the educational opportunity payment, and (2) an excess spending tax that would be calculated by comparing each district’s voted excess spending to a yield derived from the school district with the lowest taxing capacity.

The nut graf: the draft would guarantee a tax rate tied to a benchmark district so that districts that vote identical dollars per pupil above the foundation formula would be billed at the same rate regardless of local property wealth. Districts with greater property wealth would raise more at that rate; the proposal directs those “extra” dollars into a state reserve rather than letting wealthier districts retain the surplus locally.

Staff said the excess spending yield would be derived using the school district with the lowest aggregate equalized education property tax grand list per long‑term membership. Julia Richter of the Joint Fiscal Office summarized the policy goal: “regardless of what school district you are in, if you decide to spend X number of dollars per pupil above the foundation amount, you get a certain tax rate. Full stop.” That common rate would be applied statewide to districts that vote the same per‑pupil amount above the foundation payment.

The draft builds a penalty into the calculation by benchmarking the yield to a specified fraction of the lowest district’s value. Staff used 0.8 (80¢ on the dollar per $100 of value) in examples to illustrate how the penalty raises the effective rate required in higher‑wealth districts to produce a given per‑pupil dollar amount. Under the example used in the discussion, that fraction reduces the amount that would be raised in the benchmark district and therefore increases the rate other districts must use to raise the same per‑pupil dollars; the difference becomes revenue flowing into the reserve.

Staff emphasized that the reserve would hold the excess revenue and that the draft contemplates a later “waterfall” directing some reserve funds, after an interim period, into a school construction special fund. The timing of that waterfall was discussed as “after a year or two” in the meeting and therefore not fixed in the draft.

The draft also includes a proposed cap on excess spending of 10 percent of a school district’s educational opportunity payment. Staff described that figure as a placeholder for modeling and recommended further modeling before adopting a final cap or limit.

Other technical features flagged in the presentation: - The December 1 letter: the commissioner of taxes would produce an annual December 1 letter showing the base amount, each district’s estimated long‑term membership, the aggregate equalized grand list per long‑term membership and a recommended statewide education property tax rate and excess spending yield so districts can know in advance what rates they would need to budget for. Staff said those numbers would allow districts to calculate the rate required to raise any voted excess spending. - The excess spending calculations use long‑term membership (not weighted long‑term membership) when dividing excess spending into a per‑pupil amount. - Under the draft the commissioner of taxes, rather than the secretary of education, would determine municipalities’ net education tax payments and certify the yields and rates used for billing and remittance to the state education fund. - The homestead change: the draft would repeal the current state property tax credit (PTC) and replace it with a tiered homestead property tax exemption, with ascending exemption percentages tied to household income brackets and an acreage limit (the exemption applies only to the claimant’s homestead and up to two acres).

Committee members asked for charts and numerical examples. Staff offered to produce comparative charts showing the administration’s state‑guarantee approach (benchmarked to the median district and paid through a statewide base increase) and the draft’s excess‑spending yield approach (benchmarked to the lowest district with a fractional penalty). Staff recommended modeling the fiscal and distributional impacts and said legislative offices would prepare materials for the next meeting.

No formal motion or vote was taken during the session; members directed staff to return with tables and examples and to review legislative text in greater detail at the next meeting.

The meeting closed with scheduling notes: the committee will reconvene to walk through the bill with Education Committee staff and invited presenters and to review prepared charts and draft language.